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Building a Market-Oriented Organizational Environment: An Implementation Framework for Small Organizations

Beth Ann Martin, John Carroll University
James H. Martin, John Carroll University


A resource-based view of the organization (Chatterjee and Wernerfelt 1991; Hunt and Morgan 1995; Wernerfelt 1989) suggests organizations should focus their efforts on developing and maintaining resources that will help the organization develop strategic skills and capabilities for implementing value-creating strategies. Pelham and Wilson (1996) and others (e.g., Day 1994; Slater and Narver 1999) argue that a market-oriented organizational culture can be an especially strong resource for developing strategies that lead to increased performance. Pelham and Wilson (1996) studied smaller firms and found that the influence of the organizations strategy and structure had less impact on performance than did having a market-oriented culture. Thus, while larger organizations have a fairly wide and substantial base of resources from which to draw (e.g., financial, human, technological, etc.), smaller organizations frequently must rely upon limited resources to be competitive, suggesting a market-oriented culture can be an exceptionally important resource for the small organization.

The issue confronting an organization wanting to develop a market-oriented culture is how to bring this about. While the nature of the relationship between market orientation and firm profitability has received substantial attention in the literature, there has been less attention given to the process by which an organization would implement a market orientation. Although there is some guidance in terms of general areas of concern (e.g., Jaworski and Kohli 1993; Harris 1999) very few published studies articulate a systematic approach that ties the necessary concepts together into an overall framework. Based on a model of Management Intervention suggested by Porras and Robertson (1990) we propose a series of implementation activities that are grounded in theory, testable and managerially focused.

A systematic approach to improving organizational performance through the development of a market oriented culture can be considered a management intervention. Management interventions can be viewed as planned changes in a work setting that are designed to change the behavior of individual organization members and ultimately lead to improved organizational outcomes (Porras and Silvers 1991). A model of the management intervention process described by Porras and Robertson, (1990: Figure 1) presents organizational intervention as potentially producing changes in a variety of workplace characteristics. The basic assumption in the model is that changing the work setting (including social factors, technology and physical characteristics) is the most influential tool for changing individual behavior, which in turn should lead to improved organizational outcomes. The foundation for the model rests on the perspective that altering the work setting can introduce changes in individual behavior. This assumption is based on cognitive models of behavior which postulate that an individuals environment is an important source of information about appropriate behavior (Porter and Lawler 1968; Hackman 1981). It is proposed that a management intervention that focuses on the organizational factors inherent in a market oriented organization will result in changing individual worker behavior to become more market oriented.

Developing a market orientation is a management intervention. As our discussion develops, it will become clear that there are necessary changes in the organizational setting, social factors and possibly technology that will lead to changes in employee attitudes and behavior toward becoming a market oriented organization. We will begin by providing an overview of market orientation. While this is not a comprehensive literature review, it will highlight some of the main issues and concerns in this literature. Subsequent sections will discuss using an organizations performance management system and an internal customer orientation as the basic mechanisms for the framework. The final section will provide a 6-step model for initiating a market orientation.

Literature Review

Market Orientation and Performance

Over the years there has been conflict and debate in the conceptualization of market orientation. One view of market orientation has presented the concept from an information/attitudinal perspective (Han, Namwoon and Srivastava 1998; Hooley, Lunch and Shepherd 1990; Narver and Slater 1990). This perspective suggests that market oriented organizations are interested in, actively maintain, and use information about customers, competitors and general market trends. The original focus for this perspective was the type of market information the company maintained and the degree to which employees were interested in it. A second approach to market orientation has been a behaviorally focused conceptualization (Deshpande 1999; Jaworski and Kohli 1993; Kohli and Jaworski 1990). This approach has suggested three behavioral elements are required for an organization to function with a market orientation. The first, intelligence generation, includes customers verbalized needs and preferences as well as the analysis of exogenous factors that influence customers needs and preferences. The second behavioral element of a market orientation is intelligence dissemination, which is the communication of the information throughout the organization. Providing all employees across the organization with market information is important because it facilitates the third element, responsiveness to market intelligence. Response to market information is considered to be more rapid and more effective when the organization as a whole is knowledgeable about the needs of the competitive marketplace.

In a discussion of the attitudinal/behavioral issues, Avlonitis and Gounaris (1997) have offered a reconciliation between these two conceptualizations by suggesting that an organization must emphasize both attitudes and behavior in its market orientation in order for the organization to be able to maintain its market orientation in the long run. Both Avlonitis and Gounaris and Wrenn (1997) conclude that there must be a combined focus on attitudes and practice (behavior). Based on Figure 1, the proposed framework strongly integrates these two perspectives by placing the initial emphasis on altering the organizational setting and, thereby the employee attitudes, followed by an emphasis on individual behavior change. All sides to this debate agree that having a market orientation is not something an organization has or does not have. An organization is more or less market oriented, being able to respond better or less well to market opportunities.

While the nature of market orientation and its role in improving business performance has been debated for over 30 years, only recently has it been empirically investigated. Several studies have found a positive relationship between market orientation and business performance (e.g., Pelham 2000; Deshpande and Farley 1999; Appiah-Adu and Ranchhod 1998; Appiah-Adu 1997). Narver and Slater (1990) and Slater and Narver (1994, 2000) report a positive relationship between market orientation and return on assets. In addition, Slater and Narver (1994) also suggested a positive relationship between market orientation and sales growth. Deshpande, Farley and Webster (1993) found businesses customer orientation is positively related to business performance. Appiah-Adu (1997), studying small firms, reported a positive impact of market orientation upon business performance, and Appiah-Adu and Ranchhod (1998) indicated market orientation is significantly correlated with growth in market share, overall performance and profit margin, although not with new product success. Also focusing on small firms, Pelham and Wilson (1996) suggested a strong influence of market orientation on measures of small-firm performance. For example, they reported market orientation positively influenced the current years level of profitability and they found market orientation was significantly related to product quality, which was significantly associated with growth share and profitability. They concluded that a high level of market orientation can provide a small organization with a strong source of competitive advantage. Pelham (2000) reported that market orientation in small organizations is correlated positively with marketing/sales effectiveness, growth and profitability. Recently, research has suggested that the impact of market orientation on an organizations performance may be moderated by such factors as the strategic direction of the organization (Matsuno and Mentzer 2000) or by extreme economic volatility (Grewal and Tansuhaj 2001). Mounting evidence at the organizational level has generally supported the relationship between market orientation and business performance, leading to a generally accepted conclusion that within certain constraints, an organization is better off with more market orientation than with less market orientation.

Missing in the Literature

While understanding the need for a market orientation is important, business leaders must also understand how to go about creating or developing a market orientation within their business. Although the marketing literature is beginning to show strong evidence of the positive impact of a market orientation on performance, only limited literature has investigated the issue of improving an organizations use of market intelligence and this literature is lacking an integrated framework to help organizations establish a market orientation. Wrenn (1997) and Han, Namwoon and Srivastava (1998) suggest a paucity of research exists on how to manage and develop a firms market orientation. Early work in this area by Kohli and Jaworski (1990) suggests the critical need for upper management support and its impact on shaping organizational values central to a marketing culture. Garver and Cook (2001) discuss how companies can effectively use customer value and satisfaction data. They see the main challenge as incorporating customer satisfaction data to drive improvement. In contrast to previous market orientation frameworks, Garver and Cook suggest a customer value and satisfaction culture will focus on both attitudes and behaviors. It is this market-oriented culture that guides employees through the myriad of customer related data. They believe there are two equally vital processes; getting data to people and getting people to use the data. It is the response to the data that drives competitive advantage. The ideas proposed by Garver and Cook are clearly foundational building blocks for a model of developing a culture of market orientation.

Based on the management intervention model above (Porras and Robertson 1990), along with the work of Garver and Cook (2001), this paper will identify tools and processes that can help an organization develop a market orientation in such a way that it becomes pervasive throughout the organization. The processes were designed so that small organizations with limited resources could pursue the development of a strong market orientation. While this model will provide direction for organizations of all sizes, the proposed steps can be most directly applied to small organizations. First, a dyadic perspective on an organization that includes an internal customer orientation will be discussed. Following this, a multi-level implementation framework will be developed and procedures will be outlined that can facilitate the creation of a market oriented organization.

Developing An Internal Customer Orientation

A market orientation is a shared set of values, beliefs and behaviors that focus on putting the customer first (Deshpande 1999). The difficulty with developing this orientation in practice is that employees are not likely to be willing to adopt these values, beliefs and behaviors without a specific structure and system to encourage change. A mechanism is needed that can be used for creating market oriented behaviors throughout the organization, along with the means for implementing the mechanism effectively. The proposed framework combines an internal customer orientation with a performance management system for that mechanism. The main focus from Porras and Robertsons model (1990), will be on changes to the organizational setting and individual behavior change.

Baker, Simpson and Siguaw (1999) and Siguaw, Simpson and Baker (1998) report evidence that the relationship between external customers and external suppliers is stronger when there is a match between the degree of market orientation of both customers and suppliers. Steinman, Deshpande and Farley (2000) report finding a gap between external customer and external supplier perceptions of each others market orientation, but that this perception gap lessens with lengthier and stronger relationships. Research generally shows that the stronger the relationship between customers and suppliers, the stronger the performance of both supplier and customer (Cannon and Homburg 2001).

The total quality management literature has suggested that an organization can be thought of as interrelated sets of dyads between internal customers and internal suppliers (Goetsch and Davis 1997; Hallowell, Schlesinger and Zornitsky 1996). When internal suppliers are oriented toward satisfying their internal customers needs, organizational performance will be improved (Achrol and Kotler 1999). When the internal customer needs are defined in terms of the ability to help the organization satisfy external customer needs, then the result should be an organization that has become more market oriented. Hauser, Simester and Wernerfelt (1996) and others (e.g., Conduit and Mavondo 2000; Gronroos 1990) have suggested that in order to develop a market orientation, a firm must focus its internal suppliers on serving their internal customers, who in turn serve other internal customers who eventually serve external customers. Hauser, Simester and Wernerfelt conclude that having an internal customer focus is imperative to drive a market orientation deep within an organization. The key to bringing this about within their model is the organizations reward system. They propose a bonus type compensation system in which internal customers negotiate with their internal suppliers for payment based on the suppliers ability to help the internal customer satisfy their customer. Although the specific form of compensation may be less important as different organizations will want to work within different forms of compensation, the work of Hauser, Simester and Wernerfelt does pinpoint the necessity of tying compensation and other performance management activities to the specific, market oriented behaviors the organization is trying to elicit from its employees.

Using an internal customer orientation to drive a market orientation deep within an organization requires the employees to learn how to focus on both the needs of the external customer and to perceive other employees as internal customers (Mohr-Jackson 1991). This necessitates a change in the way employees perceive their jobs. For example, within a typical company, employees may focus on the work they produce because the reward structure is based on productivity. An internal customer/supplier orientation suggests that, rather than focusing on the production of a certain number of components per hour, a component line producer would want to know if the person within his/her organization receiving the components was satisfied with the components quality and timeliness. However, the component maker is also a customer who needs to be satisfied. S/he is a customer of the department or person who delivers the materials that are used to make the components. If the materials arrive late or with defects, then the component maker will be a dissatisfied internal customer. The component maker is part of at least two dyads. In the first dyad the product component maker is an internal supplier of components to others, and in the second dyad s/he is an internal customer of other internal suppliers. Heilmann (1994) suggested that the internal customer focus is important because internal customer objectives can be aligned with firm objectives that would include providing superior customer value to external customers. This alignment of internal customer objectives with the objectives of the firm can take place through the implementation of a reward system and the implementation of a performance evaluation system to support the reward structure that includes the appraisal of the effectiveness of specific outcomes by internal customers (Conduit and Mavondo 2000; Hauser, Simester and Wernerfelt 1996). By working within the dyadic system it becomes apparent how a change in the organizational setting and social factors will impact individual behavior.

Sustaining the Intervention: A Performance Management System

A performance management system is one mechanism that can be used for creating and sustaining market oriented behaviors throughout the organization. There is ample evidence demonstrating that behavior-based performance evaluations are consistent with improved customer service (Anderson and Oliver 1987; George 1990). When organizational rewards are tied to specific employee behaviors a performance management system is created. Behavior based evaluations appraise employees on how they act rather than on the specific outcomes achieved. Behavior such as contacting members of ones own customer/supplier dyad to assess satisfaction, giving feedback to an immediate supplier regarding the timeliness or the quality of materials, and contacting ones own customers to assess his/her level of satisfaction would be behaviors critical to the success of developing a market oriented culture. As such, these behaviors would form the criteria upon which the actual performance appraisal is based and would be included on each employees performance evaluation. Identifying the specific behaviors involved in focusing the internal suppliers on serving their internal customers, rather than on objective criteria such as number of units produced, will create a clear customer oriented focus within the organization. Such a system gives employees the incentive to engage in behaviors that are supportive for improving product and service quality. Any desired change in the attitudes and behaviors of employees must be managed by altering the performance management system to reflect the desired changes.

While there are multiple ways to develop a performance management system, one alternative to achieve the balance between changing employee attitudes and subsequently changing employee behavior is to develop a process similar to the balanced scorecard proposed by Kaplan and Norton (1992). The balanced scorecard is a management intervention system that provides a presentation of both financial and operational measures to upper management so that they can receive a quick comprehensive view of the company. Because most activity takes place at department levels, all measures are decomposed to what are called local levels. Local level metrics allow top management to keep abreast of key internal processes that affect overall corporate objectives. A main benefit of this process is that employees at even the lowest levels in an organization have clear targets and goals set for them, and these goals always contribute to the companys overall mission. In addition, weak performance is easy to diagnose. Setting behavior and/or performance targets for employees clearly communicates the attitudes and expectations of upper management. This is turn should lead to behavior change on the part of the workers such that their behaviors are in line with the goals of top management.

Although a complete revamping of the firms performance management system may be an ideal, it is not necessary that a new performance management system be developed prior to initiating a market orientation program. A current performance management system can be amended to include metrics that assess employees gathering, dissemination and responsiveness to appropriate market intelligence. In addition, these measures would also need to contribute to each employees overall performance evaluation.

Initiating a Market Orientation

Based on the above discussion, moving an organization to a market orientation requires the achievement of two management objectives: a change in employee attitudes and a change in employee behavior. The first objective is to change employee knowledge and attitudes in a way that reflects a pervasive market oriented culture. However, changing knowledge and attitudes is not sufficient to build a long lasting market oriented culture. The second objective is to change employee behavior in a way that focuses the employee (as an internal supplier) on helping his/her internal customers better satisfy their customers in a way that ultimately helps the organization to satisfy external customers. To achieve these objectives, the organizations members must first be made aware of the importance of internal customers and the organization must then identify the specific behaviors of employees that need to change. Reflecting on the intervention model in Figure 1, emphasis will clearly be on the middle two steps of the model (changing the organizational setting and changing individual behavior). That emphasis will necessarily come from upper management intervention.

The major recurring behavioral phases of a market orientation as described by Kohli and Jaworski (1990) and Jaworski and Kohli (1993) include gathering market intelligence, disseminating the market information and rapidly responding to the market information. Using these three phases as a guide, we proposed that new employee behaviors that must be introduced into a firm with little or no market orientation are the gathering of market information, sharing the information with others in the organization and responding to market information to satisfy customers. Within the proposed internal customer orientation framework, this would entail gathering internal market information regarding internal customers needs and identifying how satisfying those needs would help the internal customers be able to better satisfy external customers needs. Sharing market information would mean, 1) sharing the internal market information across relevant internal suppliers, and 2) sharing the information across internal customers. Finally, employees must be motivated to respond to the internal market information in a way that ultimately facilitates the satisfaction of the external customer. Although this may appear to be an arduous task for employees, keep in mind that employees would only need to be gathering and responding to information relative to their own internal and external employees and not employees across the entire organization.

Central to the proposed framework is the difficulty in attempting a dramatic change in all aspects of employee behavior and attitudes. For an organization that is attempting to move from a low degree of market orientation to a high degree of market orientation, expecting instant change in employee behavior is unrealistic. Top management must communicate the desired market-oriented culture, and this must be done on a continuous basis (Day 1994; Jaworski and Kohli 1993). However, top down communication is not sufficient to bring about the desired change in employee behavior. A management process is required that is structured to bring about this change in employee behavior. Based in part on the work of Porras and Robertson (1990) and Garver and Cook (2001), the proposed framework suggests the changes required of employees should occur in a series of managed steps or phases that gradually shape employee behavior into the desired market oriented behavior.

Changing the behavior of employees by changing the structure of the performance management system is seen as the ultimate objective of this framework. To do this, employee knowledge and attitudes regarding a market oriented culture must change, and then the organization must provide the structure to change employee behavior.

Proposed Framework For Creating a Market-Oriented Culture

For a traditional organization in which the marketing function is relatively separate from other functional areas, developing a market-oriented culture can be a daunting task. To facilitate the development of a market-oriented culture, this framework breaks the development process into the two components discussed earlier (attitudes and behavior) that reflect the two separate phases of the market orientation construct (Figure 2). Phase I of this framework focuses on three steps designed to change employee knowledge and attitudes to better reflect a market-oriented culture. Phase II outlines three steps for changing employee behavior in a way that will create and maintain a market oriented environment.

Phase I: Educating the Employees: Changing Worker Knowledge and Attitudes

Employees will not change their behaviors in the work place until there has been a clear explanation of what it is management is trying to accomplish. The more support there is for market-oriented activities at the top of the organization, the stronger the message to the work force will be. Accomplishing Phase I is divided into the following three management steps.

Step 1: Employee education regarding the need for both an internal and an external customer focus. Harris (1999) suggested that employees are potential barriers to creating and/or sustaining a market orientation for a variety of reasons. Employees tend to have a short-term perspective that runs counter to the longer-term focus within the market orientation construct. Employees tend to focus their efforts on their own productivity rather than on how their productivity benefits others in their organization. Most employees overlook the fact that their efforts are connected to the organizations customers, negating the customer-oriented aspect of the market orientation construct. Most U.S. organizations have a corporate culture that emphasizes individualism and productivity. Employees understand their job to be generating as many units of work as they are able to produce. This form of behavior and its accompanying attitudes are typically reinforced through a performance management system that compensates employees for their productivity in terms of work units produced. Because a central tenet of the market orientation concept is a customer focus (Slater and Narver 1999), the key for initiating the development of a market orientation is to refocus the individualism and productivity aspects of an organizational culture toward internal and external customer satisfaction.

The organization should begin with a series of department-wide seminars that clearly explain the concepts of internal and external customers and each workers role within the supplier/customer dyad. It is important to recognize that each employee would be involved with information to and from only his/her own customers and not the entire company. To facilitate this education process, the organization can map out the series of dyads that exist between employees in the organization, indicating each employees role as an internal supplier and an internal customer. We refer to this map as a dyadagram. A dyadagram is a series of mapped dyads that indicate the supplier/customer nature of the relationship between pairs of individuals in an organization. The dyadagram originated from a strength-of-ties perspective evolving out of social network theory (Uzzi 1996; Marsden and Campbell 1984; Granovetter 1973, 1982). The strength-of-ties perspective focuses on the sharing of many types of information between social actors in a social network. The dyadagram is more specific than this because it refers to an actual mapping of a series of work relationships and is restricted to internal customer-supplier relationships. Each individual in a firm has at least one dyadic relationship where s/he is either the supplier of something (for example, work product) or a customer/receiver of something. In many instances an individual worker will be involved in multiple dyadic relationships functioning as a supplier for specific individuals and a customer with others. The dyadagram focuses solely on customer/supplier relationships within an organization. Applied to the development of market orientation through internal supplier/customer dyads, the dyadagram would be able to guide the employee to those supplier/customer dyads that are more or less critical to different aspects of the employees job. The dyadagram will allow employees across different departments to visualize their roles within their own close networks and their role in the organizations relationship with external customers.

To strengthen the point that employees are both suppliers and customers of others in the organization, top management should maintain and communicate artifacts, or organizational stories of critical incidents that are examples of internal supplier/customer relationships that ultimately improved external customer satisfaction. Such cultural artifacts are an important means for reinforcing the market-oriented culture that top management is pursuing (Homburg and Pflesser 2000).

Once employees know who their own internal customers and suppliers are, the second part of this process includes the identification of the specific internal and external market information that is required or expected to be collected and maintained by employees for each job and the sources of that information.

The dyadagrams would indicate those within the organization from whom information should be collected and maintained by the employee. The market information that is required would include information about the employees internal customers and the companys external customers. For those dyadic relationships between internal suppliers and customers that are identified as stronger, the employee might be expected to collect and maintain information that is more in-depth about the internal customers needs and how those needs relate ultimately to the external customers needs. For those dyadic internal relationships that are identified as weaker, the employee might expect to collect and maintain a broader variety of information, but with less depth (e.g., Rindfleisch and Moorman 2001). In addition to the need-related information for those internal customers in weaker dyads, the broader variety of information may also provide the employee with a broadened perspective on his/her job and role within the organization as well as new insights and ways to creatively satisfy internal customers so that they can satisfy external customers. Finally, for some positions within the organization for which there is little external customer contact, there may still be opportunities to gain external market information that would help satisfy internal customers who must satisfy external customers. The organization should encourage employees in these positions to identify these opportunities and to collect the market information the opportunities may provide.

Step 2: Employee education regarding the dissemination of market intelligence. That employees at varying levels of the organization will possess a clear understanding of what should happen to the market information generated in Phase I is an unrealistic assumption. Management must decide on the most efficient means for educating employees to their part in the dissemination process. While many options exist to accomplish this task, the goal is for employees to share their knowledge of internal and external markets with others in the organization. Relying on the previously described dyadagrams, focus would be placed on the most appropriate linkages for disseminating the information. Following a strength-of-ties perspective (Marsden and Campbell 1984), the dyadic linkages would help to identify with whom the information should be shared as well as what information should be shared. To facilitate this education process, whole plant or large unit seminars may work well in some instances, where small department meetings may be better for groups less familiar with the market orientation concept and the sharing of market information. In most organizations there will likely be a combination of written materials and group meetings scheduled so that all employees have a full understanding of information dissemination. Regardless of the process employed, the main objective of this step is to clarify with the organizations employees why the dissemination of market intelligence is so important. The employees need to recognize that gathering information is important, but that the information needs to be shared so that it can be acted upon by various individuals or departments.

Step 3: Communicating the reward system to encourage responsiveness to market information. The final part of the first phase is to close the loop in the employees understanding of the new system. Thus far the workers have received an explanation of the need for an internal and external customer orientation and their role in generating and disseminating both internal and external market information. At this point employees need to understand what the company would like for them to do with the market information they receive. Some companies will encourage workers to act independently and make changes themselves that will positively affect the consumer. Other companies prefer ideas be discussed between the workers and their supervisor within a workers own department or manufacturing cell, and then acted upon, while still other companies prefer all ideas be submitted for approval to higher levels of management before being acted upon. Critical to this process is that whatever system the company chooses, it must be clearly communicated to employees.

In addition, it is crucial for top management to determine how the processes of intelligence generation, dissemination and responsiveness will be tied into the performance evaluation of the work force. Whether they use the balanced scorecard approach of Kaplan and Norton (1992) or a more traditional performance management system, it is important that the manner in which market-oriented behavior will be tied to rewards is explained to everyone in the organization. The reward system is a key element of Phase II and will be discussed in more detail subsequently.

In summary, Phase I of the system being proposed is focused on education of the workforce. From the top to the bottom of the organization the employees need to know that management is committed to gathering, disseminating and responding to internal and external market information and that employees are expected to engage in these behaviors to a certain extent.

Phase II: Implementation of a Performance Management System to Change Employee Behavior

Step 4: Encourage the gathering of market information as part of every employees job. The fourth step in the process requires employees to go from the acknowledgement that a customer focus is important, to changing their behavior to support a customer focus and the generation of market information. Improving knowledge and attitudes of employees is insufficient to change their performance. An additional, necessary means for encouraging the generation of market intelligence is through a performance management system. A performance management system can play a pivotal role in influencing organizational behavior because a performance management system is a network of related components whose ultimate purpose is to improve organizational effectiveness (Beer, Ruh, Dawson, McCaa and Kavanagh 1978). A performance management system is an initiative proposed by top management that sets up a process for on-going evaluation of worker productivity along with continuous feedback, with the ultimate goal being continual development of employee skills and activities that enhance the effectiveness of the firm. A performance management system is designed to improve an organizations effectiveness and efficiency through changing the behavior of its employees. It requires cooperation from all levels within the organization. The strategic and operational goals of the firm should be developed with a market-oriented culture being a key component.

In most organizations employees have generally been rewarded for quantity and quality of production. Their job descriptions are clear about detailing the specific activities of their jobs. The fourth step in developing a market orientation involves re-writing the job descriptions and performance standards to include the actual activities that are necessary for generating market intelligence. The behaviors necessary to generate the market information would be included in the job description and yearly objectives for each position.

The performance management system would include rewarding behaviors oriented toward generating market intelligence. This would involve detailing a reward program that will entice employees to allocate a certain percentage of their time and effort to generate market intelligence. All workers have a limited amount of time and energy that must be divided between the various aspects of their jobs. Motivating employees to allocate a portion of their resources to generating market intelligence through the reward system is a necessary component in the performance management system. The organization must not only clarify the reward system, but must also identify the nature of internal customer information the employee is expected to collect. This information would focus on the specific needs that the internal customer has in order to successfully perform his/her job. These needs will vary depending on the situation and the nature of the relationship between supplier and customer. Given the plethora of possibilities regarding the type of internal customer information the employee might collect, it is beyond the scope of this paper to provide any sort of detailed specification. However, we believe a fruitful area of research might pursue the development of a taxonomy of internal customer information.

As an example of how the first four steps would fit together, consider the job of a product design engineer. Prior to initiating a market orientation in a company, the design engineers focus would probably be the design of a product to meet product specifications. The design engineer would not necessarily be concerned with satisfying the needs of operations people or of the product or sales staff for that product and, therefore, would design the product from an efficiency and engineering perspective. Once top management becomes committed to changing the organizations product design culture to a market-oriented culture, the first initiative is to develop a dyadagram for this position. To do this one must identify the internal supplier/customer dyads that include the design engineer. For example, the engineer is, at a minimum, a supplier to production-operations people and to product managers or sales managers for different products being designed. The engineer is also, at a minimum, a customer of the concept development team and the R & D scientist/engineers who are supplying new product concepts and ideas. The dyads could be diagrammed as in Figure 3.

Also in this first step would be the identification of the sources of information and the types of information the design engineer should collect and maintain. For example, based on the dyadagram in Figure 3, in addition to the basic product specifications, the design engineer might find that the internal operations customer may want certain aspects of the product to be designed a certain way. At the same time, the product or sales internal customer for that product may also want specific aspects of the product to be designed a certain way. Both of these internal customers may be basing their design needs on what will help them achieve better performance. Both of these internal customers may also have design needs that conflict with each other. In addition, detailed market information from the concept development team or the R & D scientist may suggest alternative design possibilities not indicated in the original specifications. The dyad relationships in Figure 3 suggest the design engineer must come to understand that he/she should share information from each of his/her internal customers and suppliers with his/her other internal customers and suppliers. So, for example, knowing that operations may want X and sales may want Y could be shared with R & D, which might affect subsequent versions of the product.

To motivate the hypothetical design engineer in Figure 3 to collect the relevant market information, the evaluation system and the reward system would need to be structured so that the engineer is rewarded for collecting market information from all relevant sources. In the event of potentially conflicting needs of different internal customers, the engineer must also be rewarded for collecting information about the external customers needs for this product from sources identified in the dyadagram as well as sources external to the company. The precise nature of the reward system must be clearly communicated to the design engineer.
For example, if the engineer attends a professional conference, there is a potential source available for generating additional market information. However, the engineer is also involved in attending formal presentations, meeting with colleagues about advances in the field and finding time for rest and relaxation. Each of these activities has obvious rewards for the engineer. If a company wants the engineer to further sub-divide his/her time to talk with competitors or customers about product development, the company must reward such behavior. This could be done through a variety of mechanisms. For example, the conference stay could be extended one day in order to give the engineer more time for generating market information or there might be individual departmental incentive programs. Regardless of the specific reward mechanism used, the criteria for performance (in this case the collection of relevant information) must be clear and the reward must be of value to the engineer.

The process of gathering and sharing internal customer information and external customer information would be streamlined by the use of a computer software system that would store and disseminate market intelligence based on a dyadagrammatic design of the firm. Then as individuals collected market information they could store and disseminate it through a central location within the companys internal computer network. As discussed by Porras and Robertson, 1990; (see Figure 1), this would be an important change in technology that would result in individual behavior change.

The last two processes describe the steps necessary for employees to share internal and external market information and to respond to that market information. Both steps may occur at the same time, within a short period of time, or each step may require lengthier periods of time for implementation, depending on the organizations current culture.

Step 5: Encouraging dissemination of market intelligence. Once market intelligence is generated there is the need to disseminate the information to relevant parties within the organization. There can be no response to the information without it first being communicated throughout the organization. The main focus in this step is to motivate those individuals who have accumulated market information to take the time and effort to disseminate their information across the organization. Because people tend to perform those activities for which they are rewarded, the company must set up a system for rewarding the dissemination of market intelligence.

This step raises several issues about dissemination of information. For example, should the dissemination be formal or informal, how much information should each employee receive, should employees receive sensitive customer or financial information, how should a reward system be structured for sharing information, how often should employees be expected to disseminate information and how often dissemination should be measured are just a few of the issues managers must grapple with in their attempt to implement a market orientation. Because of the wide variation within organizational and market environments, no rules are currently available to give easy answers to these questions. Generally, wider dissemination of information is considered better for an organizations ability to respond to that information. There will, however, be an array of exceptions to this. Customer and financial information is often shared with employees in highly market-oriented firms, but we are sure there are situations where this is not the case. Reward systems are structured very differently across firms.

Whether dissemination should be formal or informal is also idiosyncratic to the organizations culture. For example, in Figure 3, if the manager for product A has received external market information that the customer is dissatisfied with the placement of an on/off switch on a particular product, then the product/sales manager needs to communicate that information to the product design engineer. The firm should develop a reward structure that will reinforce the product manager for taking his/her time to pass the market information along to the product engineer. Whether this is done in a formal report or during an informal conversation would depend on the organizations culture.

As another example of a dissemination method, one consumer products company developed and circulated a newsletter to disseminate market intelligence. Contributions to the newsletter were an active part of the job description. The company set up an incentive system for contributions to the newsletter to encourage employees across the organization to contribute. For another company, a more efficient possibility might be an internal web site dedicated strictly for market intelligence that would allow for a full dissemination of information across all levels of the organization. Employees job descriptions can include expectations for the frequency of visiting the site and incentives can be offered for contributions to the site. Regardless of the specific mechanism used, as employees begin more and more horizontal and vertical dissemination of market intelligence, the company should expect a shift in employee attitudes to reflect a market driven culture at all levels of the organization.

Step 6: Responsiveness to market intelligence: Rewarding responsive behaviors. Simply having market information available within the organization accomplishes little. The organization must respond to the information in a way that provides a competitively superior value to customers in a timely manner. A company can be responsive in several ways from re-designing products to offering new products, changing the distribution and promotion of products to changing servicing of products or of customers. By developing a performance management system that reinforces these behaviors the company will establish commitment at all levels of the organization.

By phase II all workers should be educated to understand the customer orientation of the organization. They should have available market intelligence so that now it becomes imperative for a company to establish a system that encourages the employee to respond to the market information. For example, in a retail store if information generated from customer comments indicated that external customers found it distressing when clothes were disorganized on the shelves, then the company might want its sales clerks to spend more time straightening the merchandise on the racks and shelves. However, if sales clerks are paid entirely on commission there is little motivation to spend time straightening up the clothes. Therefore, evaluating and compensating this employee based on activities that are responsive to the market information they have received is critical.

Consider the product design engineer in Figure 3. The engineer has now collected information from the product manager suggesting that external customers dont like the placement of an on/off switch. The engineer shares that information with production/operations people who like the switch where it is because it is less costly to attach in that spot. The organizations reward system must be set up such that the engineer receives a greater reward if a solution is found that uses both pieces of information thereby satisfying both sets of internal customers and ultimately the external customer. While the response to market information is a necessary step, that response should be measured for its appropriateness. If the product design engineer changes the position of a switch in response to intelligence received, the appropriateness of the change should be determined before the reward for responsiveness is offered (Hauser, Simester and Wernerfelt 1996). Efforts by Garver (e.g. Garver and Cook 2001; Garver and Gagnon 2002) suggest that customer satisfaction (for both internal and external customers) is the appropriate metric to use to evaluate responsiveness. As those authors point out however, customer satisfaction must be balanced against the profitability of achieving that satisfaction and this must also be taken into account.

Several implementation issues emerge as the manager works through this final step. In addition to the managers development of training modules for educating employees about the importance of market-oriented behaviors (Phase I), implementation of the six steps requires training to develop the skills necessary to engage in market oriented behaviors (Phase II). Employees recognizing the importance of market oriented behaviors will accomplish little if employees are not trained to perform the behaviors. Every company and every type of position will require a unique variation of training, and although it is beyond the scope of this paper to develop individual training modules for each employee position, there are several tools in the training literature and the TQM literature that could be helpful to a manager in the implementation process. For example, based on the TQM literature, the first and perhaps most important aspect of implementation would be for top management to be directly involved in some way with the implementation process. Demings management-by-walking-around approach is an excellent method that involves top management and will also communicate top managements vision and commitment to a market oriented culture. Cause-and-effect diagrams and root cause analysis, check sheets and data collection sheets, graphic displays of data and processes, and flow charts for process mapping are excellent methods for helping an employee learn how to collect information pertaining to the links between his/her actions and his/her internal customers needs. Other tools to assist the employee with the acquisition of information could include Taguchis loss function approach which would focus the employees attention on the variation of his/her behavior around a targeted goal for his/her internal customers, self audits, who-what-where-when-why-how analysis, and evolutionary operations analysis. Tools to help employees learn ways to be responsive could include a plan-do-check-act cycle, brainstorming, a root cause analysis, and goal setting. QFD matrices and force field analysis are tools that can help the employee translate his/her internal customers needs into effective responsiveness. Most books on TQM describe these tools in detail (e.g., Brocka and Brocka 1992; Crosby 1979; Deming 1982; Hodgetts 1996; Juran 1988; Pegels 1995).

Other implementation issues the company must also consider include how responsiveness will be measured and whose task it will be to track this information. Finally, in addition to collecting and tracking the performance information, decisions must be made regarding the reward structure. Will rewards be provided on a weekly, quarterly or yearly basis? When responses are still uncertain and being learned it is best to reward desired behaviors as frequently as possible. Therefore, for the first year of this plan it would be useful to plan feedback and rewards on a monthly basis, perhaps cutting back to quarterly over time. For on-going behavior, a yearly review is likely to sustain the desired level of responsiveness. However, the timing of rewards is also contingent on the frequency of opportunities for responding to market information. In addition, the organization must provide detailed training that will show employees how to use internal and external customer information.

As firms increasingly recognize the strategic importance of becoming more market oriented, organizations will necessarily focus on the problem of driving a market orientation deep into the organizations culture. This focus brings the organization face-to-face with the barriers and difficulties of implementing a market orientation. Central to those difficulties is the necessity of changing employee behavior to reflect the different orientation of the organization.

Company Example

The following is an example of how one company used the above framework to implement an organization-wide market orientation. Cardinal Fastener (40 employees; less than $20 M in revenue) is a small manufacturing company that produces fasteners used in the construction of OEM equipment such as domes, stadiums, oil rigs, and drilling cranes. When Cardinal was purchased several years ago one of the main goals of the new owner/president was to grow the company and to establish a dominant position in a national market. The company already had an established name for quality and turned its attention to focusing on the customer. The first phase of implementing a market orientation is educating the work force. The new president began by explaining to his work force the concept of internal and external customers. Next he physically lined up the employees across the plant to show them their own internal suppliers and customers giving employees a very personal sense of the dyadic relationships in which they were involved. Each worker stood arm-to-arm with his/her own customers and suppliers as the president explained to the workers why knowing their internal customers and suppliers is important information. He had several employees stand up and talk about their internal relationships so that others would begin to understand, thus establishing cultural artifacts (Homberg and Pflesser 2000) that would continue to reinforce the internal customer-internal supplier concept. Once the workers knew who their own internal customers/suppliers were, the second and third processes in Phase I took place; the nature and type of market information they were to gather was explained, as was the reward structure. The reward would be simple and straightforward; they were to be given weekly cash awards for solving problems and having error-free on-time delivery. These goals were linked to the specific performance of each job through the internal customer internal supplier network throughout the organization. In this way each employee knew exactly how his/her behavior affected his/her internal customers and how this led to satisfaction of external customers.

The second phase of the process for Cardinal was changing employee behavior. While the initial organization-wide meetings were the most difficult, once the employees began to understand the terminology and how the system worked, the president felt that the change began to generate its own momentum. To this day there continue to be monthly company-wide meetings where attendance is required. The plant shuts down for about forty-five minutes while the past months performance is evaluated and plans for the following month are discussed. This process accomplishes two elements discussed previously. It provides the opportunity to discuss market information and it also communicates the importance of maintaining a market oriented focus throughout the company. Each meeting focuses primarily on a single issue such as delivery, quality or competitors. The president tries to encourage every employee to share information with each other. Every individual in the organization is encouraged to share in these discussions. One way this is done is to use silver dollars. When an individual shares market information with the rest of the workers he tosses them a silver dollar. The silver dollar is obviously a minimal monetary incentive, but the president of Cardinal has found that it acts as a very strong social reward. Although a small token, he has found this method to be very motivating in encouraging the workers to share market information. Beyond the additional monthly monetary incentives, workers are praised and supported for gathering and sharing market information with one another.

Top management takes an active role in sustaining the market orientation within Cardinal Fastener. Market information continues to be shared on an on-going basis. Top management practices dissemination of market information by sharing both competitor and customer information company wide. The top customers and target customers are posted on bulletin boards around the plant. Delivery schedules are posted daily.

An example of responsiveness to market information is their program called Golden Nuggets. Each problem or new idea is called a Golden Nugget. This emphasizes the point that problem identification is good for the company, because only then can the problem be solved. Each problem is turned into an opportunity. Emergence of problems is considered to be the result of one of two reasons: either a procedure was not followed, or there was no procedure to follow. When a problem is identified all of those individuals responsible meet with all of the internal customers and suppliers in their chain to analyze the problem and to generate a solution. As an example, there was an order that was improperly filled. The problem was identified as an error in transcribing what the customer requested onto the job order form. The standard procedure had been to proof read each order carefully, but this had failed to produce an error-free result. The solution was that the individuals taking the orders would now use multi-colored highlighters in order to cross check line by line that each order was being transcribed correctly. Another interesting example focused on the shipping department. An external customer complained that one of their orders had the wrong number of pieces in the carton. The carton was to hold twenty-five pieces but had arrived with only twenty-four pieces. Previously, the shipping department packaged the items into open boxes for shipping. To solve the problem the sales and shipping employees got together along with the team leader in the manufacturing cell (their internal supplier). The solution was to have the pieces packed in the manufacturing cells using a subdivided tray with twenty-five clearly visible compartments. The result was that the external customer was happy and a step was cut in the manufacturing process. Thus, the Golden Nugget generated information to be shared among internal customers and suppliers and resulted in responsiveness to the problem and to the external customer. In both of the above examples employees are treating each other as internal customers and suppliers, but always with the ultimate goal of serving the external customer.

Cardinals president feels that employees need to be given every opportunity to excel. Trying to change a corporate culture is difficult. Once in place, sustaining it is less taxing, but it requires a continuous focus on the issues of internal and external customers. The workers see each other as customers and treat each other with respect, ultimately increasing both speed and efficiency of production for the external customer. The result of driving the market orientation deep into the organization has been a tremendous growth in the company (approximately 20 percent annual growth for the past five years), high quality products, competitively superior delivery time, extremely high worker satisfaction, lower costs and higher profits.

Conclusions and Future Research

Despite the general acceptance of the importance of a marketing orientation to an organizations profitability, to date little has been offered that aids businesses as they undertake such an endeavor. The main objective of this paper was to offer six management steps within two separate phases that would provide a framework for initiating a market orientation. The six steps rely on an internal customer internal supplier orientation as the link between the organizations employees and its external market. Following the suggestion of Hauser, Simester and Wernerfelt (1996), the proposed implementation structure links satisfaction of internal customers to the ability of the organization to satisfy external customers. The dyadic approach establishing stronger and weaker ties between internal customers and suppliers provides the foundation for changing the organizations performance management system in a way that shapes employee behavior toward the desired market oriented culture.

As is clear from both the framework and the example with Cardinal, managers can incorporate techniques with which they are familiar into the process. Such techniques as root cause analysis, QFD, TQM, and process mapping are a few that could be investigated for their roles in enhancing the implementation of this process. The nature of how tools such as these would fit into the framework should be explored.

What makes this process ideal for small organizations is the ability of the company president to become personally involved in the process. The president can directly communicate with employees to emphasize the connection between specific work behaviors and specific organizational rewards. In addition, dyadagrams are easily developed and understood in a small organization. Workers can readily grasp the relationship between their work and that of their internal customers and suppliers and how this affects the external customer.

Future research might be focused in three separate areas. One potential area would be developing a theoretical model around the concept of the dyadagram. The intent would be to lead to organizational designs of the internal network and technical systems for fluid communication within the network. A second area for future research is to identify which of the proposed six processes is currently being used by organizations and how might those steps be improved upon. Investigating which management techniques are most influential to the process and which metrics are most beneficial for measuring the effectiveness of the change would be additional important areas for future research. A final area for research is to study the effects of the reward structure to determine how best to tie rewards to increased intelligence generation, dissemination and responsiveness.


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